Now that home refinance rates are going up you might be wondering if you missed the boat on lowering your mortgage payment. While it’s true that rates have gone up over the last two weeks it’s not too late to get a great deal on your next home loan. Here are several tips before you refi to help find a lender who will “refinance my mortgage” without paying unnecessary fees or markup.
Who Are The Best Lenders to Refinance My Mortgage?
Everyone wants low home refinance rates. Some people focus only on getting the lowest mortgage rates at the expense of fees. If you do this when trying to find the best company to refinance my mortgage it could be difficult, even impossible to break even recouping closing costs.
If you never break even because you paid unnecessary discount points or overpaid the loan origination fee, you’re going to be losing money no matter how low your interest rate.
How to Calculate Your Break Even Point
Knowing how long it’s going to take you to break even is the first step in answering the question “Should I Refinance my mortgage?” You can approximate your break-even point using a simple mortgage calculator like this one.
Simple Mortgage Calculator
Plug in the loan details from your Good Faith Estimate and click “Calculate Now.” The difference between your old payment and the new one is your monthly savings. Dividing the total amount of your closing costs found at the bottom of page 2 of your Good Faith Estimate will tell you the number of months it’s going to take to break even.
This calculation is only an approximation because it doesn’t factor in taxes or changes in your home loan’s term length. As long as you’re keeping the same term length or going shorter the approximation is good enough to answer the question “Should I refinance my mortgage.”
Who Will Refinance My Mortgage Loan?
Before you start shopping for today’s best mortgage lenders you should invest some time checking your credit reports for mistakes. If you’re already shopping for the best mortgage lenders and find the home refinance quotes you’re getting are coming in higher than what lenders are advertising the likely culprit is your credit score.
If you haven’t done so already head over to the website AnnualCreditReport.com. The government requires the three credit bureaus (Trans Union, Equifax, & Experian) to give you free access to your credit reports once per year and AnnualCreditReport.com is how they comply with the law. Credit reports are free but you’ll pay a fee if you want to see your credit scores.
If you don’t want to pay for a credit score CreditKarma.com will give you free access to your Trans Union credit score with no strings attached. Keep in mind that you have three credit scores, one for each credit bureau. Mortgage lenders look at your middle credit score so if your scores are 680, 710 and 720 your middle score is 710.
Bonus Tip: The fastest way to boost your credit score is to pay down the balances on your credit cards below 30% of your credit limit.
How to Shop for the Best Mortgage Lenders
Remember that focusing only on home refinance rates gets you in trouble. Page two of the new Good Faith Estimate is the best mortgage fee comparison shopping tool available. Start with the loan origination fee which is item one in section A.
Do you know how much is reasonable for the mortgage loan origination fee? Many loan officers will tell you that one percent is standard; however, I’ve found community credit unions who will refinance my mortgage for as little as $400 for mortgage origination.
The less you pay closing on your home refinance the faster you’ll break even and the more you’ll benefit from low mortgage rates.
What About No Fee Refinance Loans?
You’ll see lenders like Wells Fargo advertising “No Fee” home refinance loans. Your lender might even offer this as an option at closing. No fee mortgage loans don’t really exist; every home loan has fees that have to be paid at closing. What’s different about no fee home refinance loans is that your lender is paying the settlement fees in exchange for you taking higher mortgage rates.
Is this a good idea? Taking a higher mortgage rate by a quarter or half a point means that your monthly payments are going to be higher for the entire time you’re paying the loan. (The average homeowner refinances every 4-5 years) You’ll reach a point when you break even on the fees your lender paid and after that you’re losing money.
If you don’t have the cash to pay your closing costs consider rolling the fees into your loan balance instead of taking higher mortgage rates.
You’ll find the credit for accepting higher home refinance rates on page two, item two of section A of your Good Faith Estimate. (This credit is known as mortgage Yield Spread Premium)
Other Mortgage Lender Fees to Consider
Section B of page two lists lender specific fees and other closing costs you can shop around for. Comparing page two from a variety of credit unions, banks and direct mortgage lenders will give you an idea of what’s reasonable.
Some of the best deals I’ve found when shopping for a lender who will refinance my mortgage have come from small community credit unions. Don’t let the credit union membership requirement discourage you from shopping credit unions, most will let you join when you’re doing a home refinance.
Protect Your Credit Score When Comparing Home Refinance Rates
Some homeowners refuse to give their Social Security number when shopping home refinance rates because they think they’re protecting their credit score. If you do this you’re relying on a loan officer’s best guess of what interest rates and fees you’ll qualify. This is almost always a waste of your time.
While it’s true that having a mortgage lender run your credit lowers your credit score there’s no way around getting dinged for a hard inquiry. The trick is to limit all of your home refinance rate quotes to a two week (14 day) period. When you do this you’ll only get dinged for one mortgage lender’s hard inquiry on your credit report.
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